VAT Basics Every Small Business Owner Should Know
Supply value and VAT — what "VAT excluded" really means
When a receipt says “VAT excluded,” the total amount you actually pay (supply price) already bundles together the supply value and VAT (10%). For a 1,100 KRW total, the VAT portion is 1,100 × 10 ÷ (100 + 10) = 100 KRW, leaving 1,000 KRW as the supply value — the calculation often shortened to “multiply by 10/110.”
General vs. simplified taxpayer — the key differences
Businesses are broadly split into general and simplified taxpayers. General taxpayers can deduct the full input tax from their output tax and must issue tax invoices, which suits business-to-business dealings where invoices are exchanged both ways. Simplified taxpayers have a limited input deduction, but the tax actually owed is often lower once the industry’s value-added ratio is applied — a good fit for small, consumer-facing businesses with little inventory purchasing.
The simplified-taxpayer threshold — the 2024 revision
To be classified as a simplified taxpayer, the prior year’s total supply price must be under 104,000,000 KRW (per the 2024 revision). Crossing that line switches you to general taxpayer status from the next taxable period, and some industries face additional exclusion rules regardless of revenue.
When to file — it depends on your taxpayer type
| Taxpayer type | Filings/yr | When |
|---|---|---|
| Individual, general | 2×/yr | Jul (1st half) & the following Jan (2nd half) |
| Individual, simplified | 1×/yr | The following Jan |
| Corporations | 4×/yr (quarterly) | Preliminary/final filing each quarter |
People often shorthand this as “individual general taxpayers file in January and July,” but the precise pattern is a first-half final return in July and a second-half final return the following January. Simplified taxpayers file once a year, and corporations file every quarter.
How the amount owed is set — output tax minus input tax
The VAT a business actually pays is output tax collected on sales minus input tax already paid on purchases. Selling goods for a 1,100 KRW supply price collects 100 KRW of output tax, but if input tax was already paid on materials, that amount is credited back, lowering what is actually remitted. Unlike general taxpayers, who deduct the full input tax, simplified taxpayers have a capped deduction — so the gap between the two types widens for purchase-heavy businesses.
A scenario for choosing as a small business
For a business just starting out, heavy up-front equipment purchases often favor general status, since the full input tax can be deducted; a small-inventory, consumer-facing retail or service business can benefit more from the simplified status’s lower effective burden. If many customers are businesses expecting tax invoices, check whether your simplified category still carries an invoice-issuing obligation. Which is better depends on your expected purchase and sales mix and cannot be generalized.
Related guide
The comprehensive income tax settlement that business-income earners handle every May connects to the deduction and credit concepts covered in the year-end settlement guide. This is reference information as of 2026-07-17; see the National Tax Service for the source, and consult a licensed tax accountant before choosing a business registration type.